Place (Distribution). What this topic is about The meaning and purpose of place (distribution)...
Transcript of Place (Distribution). What this topic is about The meaning and purpose of place (distribution)...
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Place (Distribution)
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What this topic is about
• The meaning and purpose of place (distribution)
• Different distribution channels
• Factors to consider when choosing distribution channels
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Think about…
• How can a business ensure that its products reach existing and potential customers?
• How and where do customers prefer to buy the product?
• How important are factors such as stock availability, price, speed?
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The Objective of Distribution
To make products available in the right
place at the right time in the right quantities
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What is a distribution channel?
A distribution channel moves a product from
production to consumption
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Channels can have various levels
Producer Producer Producer
WholesalerDistributors
/ Agents
Retailer
Customer Customer Customer
Each party in a distribution channel is called an “intermediary”
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Main Types of Intermediary
Retailer
Distributor
Wholesaler
Agent
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Retailers - Introduction
• Retailer is the final step in the chain – deals directly with the customer
• Focused on consumer markets• Various kinds of retailer:– Multiples – chains of shops owned by a single company
(e.g. Sainsbury’s or Next)– Specialist chains (e.g. fast fashion, perfume)– Department stores (e.g. Debenhams, John Lewis)– Convenience stores (e.g. Spar, Costcutter)– Independents – a shop run by an owner– Franchises (retail format operated by franchisee)
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Key Trends in Retailing
• Trend towards out-of-town stores • Decline in independents • Growth of retailer “own label” brands• Continued growth in franchising • Increase in international retailing within
Europe • Increasing technology in retailing
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Key Advantages of Retail Distribution
• Convenience for customers• Often UK-wide reach to
customers• Retailer chooses the final price• Retailer handles the financial
transaction• Retailer holds the stock• After-sales support (e.g.
returns)
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Wholesalers
• Wholesalers “break bulk”– Buy in large quantities from producers– Break into smaller quantities to sell to retailers
• Advantages– Reduce the producer’s transport costs (fewer journeys to
the wholesaler rather than many journeys to retailers)– Retailers can order in smaller amounts from wholesalers
• Wholesaler makes money by buying at a lower price from the producer and adding a profit margin onto the price paid by the retailer
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Wholesaler - Example
Producer
Wholesaler
Retailer
Customer
Sale of Daily Newspapers
Newspaper Publisher – e.g. The Sun, The Times – who send bulk print runs of newspapers to large depots run by wholesalers
Wholesaler (e.g. John Menzies) packs newspapers into bundles for retailers (e.g. newsagents)
Retailer (e.g. newsagent; petrol station) displays newspaper in store and delivers to homes
Customer = newspaper buyer
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Distributors
• Distribute (sell on) products and serve as a local sales point
• Usually specialise in a particular industry– Examples – building supplies, electrical
components, industrial clothing
• Offer products from many producers = greater choice
• Different from agents in that a distributor holds stock
Producer
Distributor
Customer
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Agent
• Specialist type of distributor• Does not hold stock• Tend to operate in tertiary
sector (services)– Travel– Insurance– Publishing
• Earn commission based on sales achieved
Producer
Agent
Customer
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Functions of a distribution channel
• Provide a link between production and consumption
• To gather market information• Communicate promotional offers• Find and communicate with prospective
buyers• Physical distribution - transporting and
storing• Financing – other parties finance the stock• Risk taking – other parties take some risk
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Channel strategy decisions
• Channel length - direct or indirect?• Choice of intermediary• Use just one or several channels?• How to move the goods through the
channel?• Control over the channel – e.g. who
decides price, promotion, packaging?
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Direct or Indirect Channels?
• A business faces a choice of using direct (short) or indirect (long) channels
• Direct– Channel where a producer and consumer deal
directly with each other without the involvement of an intermediary
• Indirect– Involves the use of intermediaries between the
producer and consumer
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Direct Channels
• Increasingly popular• Various Methods:– Direct mailing– E-commerce– Telemarketing (telephone selling)
• Examples– QVC (TV Selling)– Boden (clothes from catalogue)– Direct Line (insurance online)
Producer
Customer
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So why use intermediaries?
• Geography- customers may live too far away to be reached directly or spread widely
• Consolidation of small orders into large ones
• Better use of resources elsewhere• Lack of retailing expertise• Segmentation - different
segments of the markets can be best reached by different distribution channels
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Short or long channels?
• Short distribution channels– Few if any intermediaries used– Greater control over the marketing of the product– Keeps greater proportion of profit– But means increased distribution costs
• Long distribution channels– Reduced costs– Reduces the producer’s control over marketing
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Factors to Consider (1)
• Nature of the product– Perishable/fragile?– Technical/complex?– Customised – Type of product – e.g.
convenience, shopping, speciality
– Desired image for the product
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Factors to Consider (2)
• The market– Is it geographically spread?– The extent and nature of the competition
• The business– Its size– Its nature– Does it have established distribution network?
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Short channels are used for…
• Industrial products• Expensive and complex goods• Bulking products• Customized products• Services • Products sold in geographically concentrated
market• Products bought infrequently by relative
small numbers of customers
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Long channels are used for…
• Consumer goods• Inexpensive and simple goods• Small products• Standardised products• Goods sold in dispersed markets• Goods sold frequently and to many
customers
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Place (Distribution)